42629 lecture 5 pt 2

Integrated Product Development

Value Proposition and MarketJakob A. Bejbro [email protected]

Unless otherwise stated, this material is under a Creative Commons 3.0 Attribution–Share-Alike licence and can be freely modified, used and redistributed but only under the same licence and if including the following statement:

“Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product Development Department of Mechanical Engineering, The Technical University of Denmark”

mailto:[email protected]

Formulating a Value PropositionGetting the message across to key stakeholders.

2012Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product Development Department of Mechanical Engineering, The Technical University of Denmark

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Communicating value

• Knowing the needs, how does your product/service help?

• … You need to formulate a clear ”value proposition”.

• Ideally this statement should be ”catch all”.

• Many recipies for getting it right.


4

Recipé for Value Proposition

You start out by forming a long sentence using the following:

- Then reduce the statement until it is only 2-3 lines.

CROSSING THE CHASM VALUE PROPOSITION“For >>bulls-eye customer<<…Who >>Key purchase motivation insight<<…Our product is a >>customer language<<…That >>key benefit<<…Unlike >>key competitors<<, Ours >>key differentiators<<…At a price >>less than, equal to, or higher than competitors<<”

… Then add eggs and

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EDGEFLOW(slides courtesy of EdgeFlow Aps)

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“For customers working toward a more sustainable business, EdgeFlow’s wind turbines constitute the next pragmatic investment as well as a visionary blueprint for pervasive change.”

“For large energy consuming consumers who need ways for strengthening a triple bottom line, the EdgeFlow wind turbine is a visible and green power provider that effectively cuts CO2 emissions and clearly communicates the customer’s environmental awareness to its employees and customers. Unlike Quiet Revolution, Turby and conventional wind turbines, our EdgeFlow wind turbine is part of a whole product framework that includes communication services to accelerate learning and changing of behavior at our customers – all at a significantly reduced price.”

Companies focus increasingly on changing toward a more sustainable business. EdgeFlow offers a financially viable investment in sustainable energy production as well as a framework for integrating technology and idea into the corporate culture, thus forming a first step toward and a framework for change.”

Condensate

Condensate

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OWA real world example: EdgeFlow II

Wind turbine

Siting &

Structural/

Electrical

Integration*

Financing

options

PR Material

(internal &

external)

Value chain integration

Organizational/

Customer

learning

Technical/

Financial

Behavioral/

Cultural

Service/

Repairs*

Sound financials:• Payback < 5 years• Life time value > DKK 1,6 million• Various financing options

Strong environmental profile:• Payback on CO2 < 1 year

• Annual CO2 saving of ~ 24 tonnes

• Direct value chain integration.• Strong coupling to product.

An instrument for change• Integrated with organisational learning.• Affects behavior of employees and customers• Leading by (clear) example.

The MarketRealizing the potential, finding out where to begin.


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$What is the market?• The place where the value of your product can be realised.• The opportunity for you to establish a business.• Your idea and business defines the reach of the market.• Is inherently complex and likely to change over time.• A healthy business knows the complexities of its market and

is able to adapt to the changes.

• Market size is given as: - Number of sales

- Turnover = Number of sales * Sales price - Gross Margin = Number of sales * (Sales price – Cost of product)- Other: EBIT, EBITDA, ...

#£


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Dimensions of the market• To get an overview, the market needs to be structured.• To establish a structure, one should pinpoint dimensions

critical to your product. • Define characteristics of the perfect customer.


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Company X wants to sell:

Non-alcoholic beerYou are the new marketing executive at the brewery:• Define favourable characteristics for a customer

1. _________________________2. _________________________3. _________________________4. _________________________5. _________________________

• Now list favourable characteristics for your own idea.

Exercise 3a:

Drinks large quantities of beerCannot / may not consume alcoholPart of well defined group?


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Entire market

Market Segmentation

• Groups of customers with similar traits and needs are likely to be found.

• These ”segments” are require less complex value propositions.

Segment 1: Large Danish companies

Segment 2: Medium sized German companies

Company size

CountryDK UK DE

Med

ium

Larg

e


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You still have the job:• List customer segments for the non-alcoholic beer.

1. _________________________2. _________________________3. _________________________4. _________________________5. _________________________

•List as many segments as you can for your own idea.

Exercise 3b:

The elderly

Pub guests who need to drive home?


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Choosing a place to start• Think of the segments as pins on a bowling alley...• ...if you get the the first one, the others should follow.• Start with the most easiest segment (pin) first.• A solid base in seg 1 makes entering new segments easier.

1

2

2

3

3

4

4

4

3 4


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Evaluating segments• Use your customer characteristics to describe the

accessibility and attractiveness of each segment.

1

2

2

3

3

4

4

4

3 1

Characteristic Compliance (1-5) or yes/no

Large profit potential

Placed close by

Ease of sale

C4

C5

...

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EDGEFLOWRevisited (slides courtesy of EdgeFlow Aps)

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OWSegments

The many pins on the bowling alley

Very tallFree

standing# facilities per sale

Strong

CSR

Strong subsidies

High # per facility

No access barriersSegment

High bay warehouses

Airports

Big box warehouses

Hyper markets

Office/hotel buildings

C8

C9

C11

C12

Industrial buildings

Agricultural facilities

C10

C14

C13

Good Medium Poor

Compliance

Something missing?

What about market size?


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You still have the job:• Rate your segments by favourable characteristics

• Now rate your own segments!

Exercise 3c:

Favourable Characteristics s1 s2 s3 s4


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Total market size (and other ridiculous notions)

• It is next to impossible to pinpoint total market size.– Moon rockets (12 pcs.) and air for breathing (all living creatures) can

be seen as exceptions.

• Investors want (big) figures.• The solution is to pinpoint parts of the market.

TOTAL MARKET

PART OF

MARKET


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Estimating (sub-) market sizes• Good and bad types of market data

- Bad data (needs additional qualification)- Good data

• ”At least as big as ...” better than ”no bigger than ...”.

• If possible, link tosegments.

TOTAL MARKET

MARKET

DATA

MARKET

DATA


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Sources of info for market estimation• Estimation can be done using a ”bottom up” and/or a ”top

down” approach.

• To figure out market sizes, one has to be creative!


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Market estimation: Bottom up• Describing the market by going ”door to door”.• Look up adresses of potential customers.

– Krak, Bing, Google Maps etc.

• Find users in fora.• Do surveys

– Google docs, Forms

• Take contact.• Use kickstarter.com or similar sites.

– quantification + validation + financing = great!

1 2 3 4 5 6

7 8 9 10 11 12

13 14 15


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Market estimation: Top down• Market intelligence reports (for the lucky few).• Statistics.• Articles.• References:

– Who else is i the business?


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Market size and actual sales• A bottom up approach is likely to yield info on what it takes

to sell– ”60% of the respondants showed interest”

• However, good intentions are free of charge.• Actual sales numbers are likely to be lower.• A good match between needs and value proposition is

good for sales.– Less complex segments = less complex needs = easier sale / stronger product

Yes

No

Interested in buying?

Yes

No

Interested in signing purchase order?

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EDGEFLOWMarket size estimation (slides courtesy of EdgeFlow Aps)

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OW1st Estimate

Danish statistics and user survey

* *

Parameter:

Total number of buildings of proper size in DK.

Parameter:

Share of suitable buildings (height, placement, orientation)

Source/Method:

Danish Statistics, buildings by floor area and type.

Source/Method:

Bing maps, survey of industrial areas.

Parameter:

Share of interested customers.

Source/Method:

Survey of 30 industrial companies.

*

Parameter:

Share of actual signed purchase orders.

Source/Method:


Parameter:

Number of wind turbines per building.

Source/Method:

Geometrical study of buildings

*

= potential # of turbines sold in DK*

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OW2nd Estimate

Door to door – bottom up.

Parameter:

Number of interesting buidlings.

Source/Method:

Building hunting on Google earth, bing.

= potential # of turbines sold to 30

known UK customers.

*

Parameter:

Number of wind turbines per building

Source/Method:

Building plans, bing maps, google earth.

Parameter:


Source/Method:


*

Parameter:


Source/Method:


*

Same Same

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OW3rd Estimate

Starting from a segment – high bay warehouses

Parameter:

Number of high bay warehouses.

Source/Method:

Reference list for high bay warehouse suppliers.

= potential # of turbines sold to high

bay warehouses in EU (specific to certain suppliers)

*

Parameter:

Number of wind turbines per building

Source/Method:

Looking up reference buildings.

Parameter:


Source/Method:


*

Parameter:


Source/Method:


*

Same Same

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OWFurther estimates

The list goes on, but the point has been made.

Suddenly, out of the blue – a market intelligence report


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Exercise 3d:

Your time to shine:• Pick a segment and do a quick market estimate.

(Use Google, wikipedia, articles, ...)

You have 10 minutes(!):5 minutes for planning5 minutes for ”Googling”

What was your approach?How far did you get?

• On Friday – figure out ways of doingThe same for your own idea.


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A few notes on pricing• Number of sales is not interesting if there is no profit – you

therefore need to estimate a price.• Try to estimate a price by:

– Looking at competing products– Products of similar complexity/size/type– Describing product costs and estimating sales price

• Prices should vary between customers/segments– Look for ways of selling at a high price in the early stages.– This is your ”pricing strategy”.

Profits

Costs

Price of product


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Q?

42629 lecture 5 pt 2

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